3 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended March 31, 2001 Commission file number 1-19254 Lifetime Hoan Corporation (Exact name of registrant as specified in its charter) Delaware 11-2682486 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) One Merrick Avenue, Westbury, NY 11590 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 683-6000 Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes NoX APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value 10,487,130 shares outstanding as of April 30, 2001 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LIFETIME HOAN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) <TABLE> <CAPTION> <S> <C> <C> <C> <C> March 31, December 31, 2001 2000 (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $2,649 $1,325 Accounts receivable, less allowances of $3,745 in 2001 &$3,582 in 2000 16,419 18,158 Merchandise inventories 49,391 45,595 Prepaid expenses 3,278 3,477 Deferred income taxes 717 870 Other current assets 2,376 2,667 TOTAL CURRENT ASSETS 74,830 72,092 PROPERTY AND EQUIPMENT, net 16,666 13,085 EXCESS OF COST OVER NET ASSETS 15,924 15,906 ACQUIRED, net OTHER INTANGIBLES, net 9,682 9,780 OTHER ASSETS 1,514 1,256 TOTAL ASSETS $118,616 $112,119 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $14,258 $10,746 Accounts payable and trade Acceptances 13,086 6,709 Accrued expenses 13,423 16,619 TOTAL CURRENT LIABILITIES 40,767 34,074 MINORITY INTEREST 460 528 STOCKHOLDERS' EQUITY Common Stock, $.01 par value, shares Authorized 25,000,000;Share Issued and outstanding 10,4492,130 in 2001 and 10,501,630 in 2000 105 105 Paid-in capital 61,092 61,155 Retained earnings 17,341 17,359 Notes receivable for shares issued to stockholders (908) (908) Accumulated other comprehensive loss (231) (180) Deferred compensation (10) (14) TOTAL STOCKHOLDERS' EQUITY 77,389 77,517 TOTAL LIABILITIES AND STOCKHOLDERS' $118,616 $112,119 EQUITY See notes to condensed consolidated financial statements. LIFETIME HOAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) </TABLE> <TABLE> <CAPTION> <S> <C> <C> <C> Three Months Ended March 31, 2001 2000 Net Sales $31,307 $27,609 Cost of Sales 17,367 14,517 Gross Profit 13,940 13,092 Selling, General & Administrative 12,692 10,762 Expenses Other Expense (Income) 118 (56) Income Before Income Taxes 1,130 2,386 Income Taxes 491 1,013 NET INCOME $639 $1,373 EARNINGS PER COMMON SHARE-BASIC AND $0.06 $0.12 DILUTED See notes to condensed consolidated financial statements. LIFETIME HOAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) </TABLE> <TABLE> <CAPTION> <S> <C> <C>Three Months Ended March 31, <C>2001 <C>2000 OPERATING ACTIVITIES Net income $639 $1,373 Adjustments to reconcile net income to net cash provided by / (used in) operating Activities: Depreciation and amortization 845 754 Deferred tax (benefit) 153 23 Provision for losses on accounts receivable (9) 2 Reserve for sales returns and allowances 1,692 1,289 Minority interest (68) 93 Changes in operating assets and liabilities: Accounts receivable 56 3,115 Merchandise inventories (3,796) 1,365 Prepaid expenses, other current assets and other assets 232 (88) Accounts payable and trade acceptances and accrued expenses 3,182 (1,179) Income taxes payable - 411 NET CASH PROVIDED BY OPERATING ACTIVITIES 2,926 7,158 INVESTING ACTIVITIES Purchase of property and equipment, net (4,180) (514) Acquisition of M. Kamenstein, Inc. (164) - NET CASH USED IN INVESTING ACTIVITIES (4,344) (514) FINANCING ACTIVITIES Proceeds(repayment) of short-term borrowings 3,512 (6,808) Repurchase of common stock (63) (544) Cash dividends paid (656) (737) NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 2,793 (8,089) EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS (51) - INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 1,324 (1,445) Cash and cash equivalents at beginning of period 1,325 1,563 of period CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,649 $118 See notes to condensed consolidated financial statements. LIFETIME HOAN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required accounting principles by generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. It is suggested that these condensed financial statements be read in conjunction with the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Note B - Inventories Merchandise inventories, principally finished goods, are priced at the lower of cost (first-in, first-out basis) or market method. Note C - Line of Credit Agreement The Company has available an unsecured $25,000,000 line of credit with a bank (the "Line") which may be used for short-term borrowings, letters of credit, or trade acceptances. Borrowings under the Line bear interest payable daily at a negotiated short- term borrowing rate. The effective interest rate at March 31, 2001 was 7%. As of March 31, 2001, the Company had letters of credit and trade acceptances of $8,177,000 outstanding and $11,200,000 of borrowings under the Line. The Company is charged a nominal fee on the entire Line. The line is cancelable by either party at any time. In April 2001, the Company obtained an additional $10,000,000 line of credit with another bank which may be used for short-term borrowings. In addition to the lines of credit above, the Prestige Companies (the Company's 51% controlled European subsidiaries) have three lines of credit with three separate banks for total available credit facilities of approximately $3.3 million. As of March 31, 2001, the Prestige Companies had borrowings of approximately $3.1 million against these lines. Interest rates on these lines of credits ranged from 6.125% to 8.9%. Note D - Capital Stock Cash Dividends: On January 3, 2001, the Board of Directors of the Company declared a quarterly cash dividend of $0.0625 per share to stockholders of record on February 6, 2001, paid on February 20, 2001. On May 1, 2001, the Board of Directors declared another regular quarterly cash dividend of $0.0625 per share to stockholders of record on May 4, 2001, to be paid on May 18, 2001. Earnings Per Share: Basic earnings per share has been computed by dividing net income by the weighted average number of common shares outstanding of 10,497,000 for the three months ended March 31, 2001 and 11,802,000 for the three months ended March 31, 2000. Diluted earnings per share has been computed by dividing net income by the weighted average number of common shares outstanding, plus the dilutive effects of stock options, of 10,561,000 for the three months ended March 31, 2001 and 11,850,000 for the three months ended March 31, 2000. Common Stock Buy Back: The Board of Directors of the Company has authorized a repurchase of up to 3,000,000 of its outstanding common shares in the open market. As of March 31, 2001, a total of 2,123,000 common shares were repurchased and retired for approximately $15,210,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth income statement data of the Company as a percentage of net sales for the periods indicated below. </TABLE> <TABLE> <CAPTION> <S> <C> <C>Three Months Ended <C> March 31, 2000 <C> 2000 Net Sales 100.0 % 100.0 % Cost of sales 55.5 52.6 Gross profit 44.5 47.4 Selling, general and admin. expenses 40.5 39.0 Other expense (income) 0.5 (0.2) Income before income taxes 3.5 8.6 Income taxes 1.5 3.6 Net Income 2.0 % 5.0 % Three Months Ended March 31, 2001 Compared to Three Months ended March 31, 2000 Net Sales Net sales for the three months ended March 31, 2001 were $31.3 million, an increase of $3.7 million or 13.4% over the comparable 2000 period. The sales increase was attributable to the M. Kamenstein, Inc. business, acquired in September 2000, which contributed $4.1 million of net sales to first quarter results. Sales in the Company's regular business were lower in the 2001 quarter as expected. Gross Profit Gross profit for the three months ended March 31, 2001 was $13.9 million, an increase of 6.5% from the comparable 2000 period. Gross profit as a percentage of net sales decreased to 44.5% from 47.4%, as a result of the impact of the added sales of M. Kamenstein, Inc., which currently generate lower gross margins than the Company's regular business. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended March 31, 2000 were $12.7 million, an increase of 17.9% from the comparable 2000 period. The increase was primarily attributable to the added selling, general and administrative expenses of the M. Kamenstein, Inc. business acquired in September 2000. LIQUIDITY AND CAPITAL RESOURCES The Company has available an unsecured $25,000,000 line of credit with a bank (the "Line") which may be used for short-term borrowings, letters of credit, or trade acceptances. Borrowings under the Line bear interest payable daily at a negotiated shor- term borrowing rate. The effective interest rate at March 31, 2001 was 7%. As of March 31, 2001, the Company had letters of credit and trade acceptances of $8,177,000 outstanding and $11,200,000 of borrowings under the Line and, as a result, the availability under the Line was $5,623,000. The Company is charged a nominal fee on the entire Line. The line is cancelable by either party at any time. In April 2001, the Company obtained an additional $10,000,000 line of credit with another bank which may be used for short-term borrowings. In addition to the Lines above, the Prestige Companies (the Company's 51% controlled European subsidiaries) have three lines of credit with three separate banks for total available credit facilities of approximately $3.3 million. As of March 31, 2001, the Prestige Companies had borrowings of approximately $3.1 million against these lines. Interest rates on these lines of credits range from 6.125% to 8.9%. At March 31, 2001, the Company had cash and cash equivalents of $2.6 million versus $1.3 million at December 31, 2000. The increase in cash is due to increased borrowings under the Company's lines of credit and increased accounts payable and trade acceptances which were partially offset by the purchases of fixed assets and increased inventory levels. On May 1, 2001 the Board of Directors declared another regular quarterly cash dividend of $0.0625 per share to stockholders of record on May 4, 2001, to be paid on May 18, 2001. The dividend to be paid will be approximately $656,000. The Company expects that all capital expenditures expected to be incurred in 2001 will be financed from current operations, cash and cash equivalents and additional borrowings. The Company believes that its cash and cash equivalents, internally generated funds and its existing credit arrangements will be sufficient to finance its operations for at least the next 12 months. The results of operations of the Company for the periods discussed have not been significantly affected by inflation or foreign currency fluctuation. The Company negotiates predominantly all of its purchase orders with its foreign manufacturers in United States dollars. Thus, notwithstanding any fluctuation in foreign currencies, the Company's cost for purchase orders is generally not subject to change after the time the order is placed. However, the weakening of the United States dollar against local currencies could lead certain manufacturers to increase their United States dollar prices for products. The Company believes it would be able to compensate for any such price increase. Forward Looking Statements: This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including statements concerning the Company's future products, results of operations and prospects. These forward-looking statements involve risks and uncertainties, including risks relating to general economic and business conditions, including changes which could affect customer payment practices or consumer spending; industry trends; the loss of major customers; changes in demand for the Company's products; the timing of orders received from customers; cost and availability of raw materials; increases in costs relating to manufacturing and transportation of products; dependence on foreign sources of supply and foreign manufacturing; risks relating to Year 2000 issues; and the seasonal nature of the business as detailed from time to time in the Company's filings with the Securities and Exchange Commission. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward- looking statements. PART II - OTHER INFORMATION Item 6. Exhibit(s) and Reports on Form 8-K. (a) Exhibit(s) in the first quarter of 2001: NONE (b) Reports on Form 8-K in the first quarter of 2001: NONE SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lifetime Hoan Corporation May 14, 2001 /s/ Jeffrey Siegel __________________________________ Jeffrey Siegel Chief Executive Officer and President (Principal Executive Officer) May 14, 2001 /s/ Robert McNally __________________________________ Robert McNally Vice President - Finance and Treasurer (Principal Financial and Accounting Officer) </TABLE>